Norges blacklists Pemex on lacking “tone from the top”
Norges, the massive wealth fund managed by the Norwegian government, announced this week that its Executive Board decided to “exclude” Pemex – essentially, to no longer invest in its bonds, due to “an unacceptable risk that the company contributes to or is responsible for gross corruption.” Norges had about US$144 mn in Pemex bonds as of June 2024, a minuscule amount (Pemex has some US$73 bn in bonds outstanding; Norges manages some US$1.8 trillion) – so its impact is mostly symbolic unless other international money managers follow its lead.
The decision followed a damning report from the fund’s ethics council, dated November 2024, which lists some of the most notable corruption scandals surrounding Pemex over the past two decades, (i.e., many but not all predating the Morena AMLO administration) presenting documents from court-cases filed in the US or web news related to corruption scandals linked to Pemex officers between 2003 to 2024. Notably, however, the report does not attempt to pass judgement on the accusations themselves. Instead, its calls out the company’s “tone from the top” as being “too passive with respect to corruption”, going on to comment that the company’s response to the fund’s enquiry “weakens trust in whether the company has an adequate response to these cases”.
“Given that the company’s former CEO (under President Enrique Peña Nieto) has been under investigation since 2017, and that the company may be linked to a substantial number of corruption cases over the past 20 years, the Council considers that the ‘tone from the top’ at Pemex is too passive with respect to corruption,” according to the committee.
While Pemex’s management and the federal government might find some solace in the fact that the majority of the corruption scandals mentioned occurred during the Peña Nieto presidency, the report is rather explicit in not giving the new administration the benefit of the doubt: “Mexico now has a new government and Pemex is once again under new leadership. It is not possible for the Council to assess whether these changes will impact the risk of corruption. […] The Council considers that Pemex’s information about possible corruption and other financial irregularities relating to contracts is insufficiently transparent and too focused on denying that irregularities may have occurred.” (Pemex’s subsequent press release attributed the decision to “years-old alleged acts of corruption”, while claiming to have timely responded to the fund’s information requests.)
It is unclear at this point what sort of impact this announcement will have in the long run— but it is clear that some potential financing sources are turning away from the “Pemex risk”, which will make it more challenging for the company to refinance its debt, particularly if the government stops transferring money to meet maturities. In the next 12 months the company will have to sit again with major banks providing revolving-credit lines that were already a headache in early 2024.
New guidelines from Board of Directors to allow even less transparency
Pemex’s new Board of Directors of Pemex opened the door for the company to directly choose its partners under the new mixed contracts, along with other less competitive ways to determine a winner. Previously, Pemex had to find partners by a farm out tender held by an independent regulator, the National Hydrocarbon Commission, which published the rules and ran the whole procedure. Now, under the recently published hydrocarbon sector law, Pemex will propose to the Energy Ministry (Sener) the migration of areas under its control so it can find partners to develop them. Sener would have the final approval, but it will be the state-owned company that will choose the procedure to find those new partners.
The new guidelines, published on April 29, establish that by “general rule” Pemex should seek partners for the mixed contracts on a public tender procedure, open to any interested company to participate. The company could use multiple methods to choose the best proposal like a reverse tender, in which participants can improve their economic proposal on two occasions. The rules also allow Pemex to use other procedures to find partners, like a restricted invitation in which the company picks the winning bid among the invited companies. The guidelines establish that Pemex will only use this method in case that it fails to assign the contract on a public tender.
Pemex could also use a “competitive bidding” process to contact potential bidders interested in the areas. This process can be activated when Pemex fails to find partners in a public tender and a restricted invitation process; however, it also opens the door to use it “when sovereignty, security, sustainability, self-sufficiency, or energy justice are at risk,” the early termination of a mixed contract or a mixed contract is granted but the invited company fails to sign the contract. Pemex can also directly award the mixed contract in case any of the prior process fails, if a company fails to sign the contract, or if there are synergies to maximize production, optimize resources, reduce costs, and improve profitability. A company or consortium can only get a mixed contract by this method twice, and with the vote of six out of the eight members of Pemex’s board of directors, minimum two votes for independent members, according to the new rules.
Highlights (and lowlights) from Pemex’s 1Q25 results and 2024 annual report
- Pemex crude output sank by 11.3% to 1.65m barrels per day (bpd) in the first quarter of this year compared with a year earlier hit partially by the cut budget in upstream activity applied since October, and the decline in flagship fields. The company saw a decline in output from top-production fields Maloob, Zaap and Quesqui. In the case of the latter, the field was the largest in terms of production started operating under the prior administration, however, it has started to decline after a couple of years in production. Pemex lost around 250,000 b/d in the quarter compared to the same period of 2024; however, management expects to increase output to 1.8m bpd by the end of this year thanks to the opportunity to establish partnerships with private-sector companies in the new mixed contracts
- Pemex only completed 17 wells in the quarter, compared to 41 in the same period of 2024. The company operated 5,970 wells, down from 6,218 wells in the prior-year period. Operating drilling rigs during the quarter averaged 26, down from 59. Pemex invested MXN 69.2bn of its MXN 97.8bn for exploration and production budget by 30 March, more than 50% of its total budget for the year.
- Pemex reported a MXN 43 bn net loss in the first quarter of the year compared with a profit of MXN 4.8 bn a year ago, mainly driven by the depreciation of the Mexican peso against the dollar.
- Pemex’s long-term financial debt declined by 4% to USD 73 bn as of March 31 compared with year-end 2024, but its short-term financial debt went up 32%. The increase is partly explained by the loans the company has taken to repay its suppliers.
- Pemex reduced the unpaid bills to suppliers by 42% during the first quarter of the year, while it restarted publishing its monthly reports on the matter. “As of March 31, 2025, we have paid approximately 42% of the total outstanding balance due to suppliers and contractors as of December 31, 2024,” said the company in its 2024 annual report.
- Pemex slashed its capex for the upstream business this year compared to last year, impacting the budget of most of its current portfolio of projects; however, the new board of directors approved an increase in the total investment for 2025 to MXN 211.5bn (US10.6 bn), up from the MXN 180bn (US$9 bn) approved by Congress last year, according to data from Pemex 2024 annual report. Pemex will direct MXN 94.7bn (US$4.7bn) of its capex to the upstream segment, 41% less than MXN 162.6bn (US$8.1 bn) spent last year. The company will divide this budget into MXN 19.9bn (US$1 bn) for exploration activities —a 48% reduction compared to 2024— and MXN 74.8 bn (US$3.8 bn) for development —a 39.6% decline.
- Pemex saw a jump in the number of barrels stolen from its infrastructure during last year despite the increase in surveillance and the reduction of illegal pipeline taps compared to 2023. Thieves extracted 17,000 bpd of fuel last year, 10.4% more than the 15,400 bpd stolen in 2023. Pemex estimates losses of Ps 20.53bn (US$1 bn) in 2024 compared to MXN 20.17bn ($1 bn) in 2023.
- Pemex continued exporting crude and fuel to Cuba in 2024 despite losing financing from a US institution after the shipments became public. Cuba has relied more on Pemex for fuel because of declining supplies from Venezuela and persistent fuel shortages. Pemex subsidiary Gasolinas Bienestar exported an average of 21,100 bpd of crude and 2,700 bpd of refined products to Cuba in 2024, at a total cost of MXN 12.7bn (USD 0.6 bn), according to the company’s annual report. Pemex began accounting for exports to Cuba in July 2023. Pemex’s exports to Cuba represented 3% of its total crude exports and 0.7% of its total oil product exports in 2024.
- Pemex proved developed and undeveloped reserves of crude and oil condensates fell from 5.89 bn barrels in 2023 to 5.49 bn barrels, a 6.8% decline. The figure is the lowest since 2019. The company only added 26 mn barrels through discoveries while it added 271 m barrels from revisions from the drilling activity in existing fields and 8 mn barrels more in its farm-outs and contracts awarded in oil bidding processes. The largest increase in proved reserves last year came from a revision in the gas and oil condensate onshore field Ixachi, which became the company’s largest reservoir in its portfolio, with 1.34 bn barrels of proved reserves, followed by offshore field Ayatsil with 931 mn barrels and 648 mn from oil cluster Ku-Maloob-Zaap.
- Pemex reached a 96.6% reserve replacement ratio (RRR) last year compared to the 103.2% achieved in 2023. Pemex struck six discoveries in Macavali, Puk, Jep, Tlatitok, Tlatitok-Sur and Sejkan fields, plus two new reservoirs in Madrefil and Yawa field. Under the new regulatory framework published in March, Sener must provide the reserves report no later than the second week of April of the following year, but in some circumstances, it could take until the second week of September.
In other energy news…
- In a surprise move, Pemex brought back the former head of its exploration and production business. Néstor Martínez stepped down last week only seven months after taking the position. The state-owned company replaced Martínez with Ángel Cid Munguía, who served as head of PEP between 2021 and September 2024. Some are wondering whether this may herald further changes at Pemex going forward.
- Pemex intends to sign up to 17 deals under the brand new mixed contracts model for this year, as the company will need fresh capital to offset its reduced capex budget over the next quarters. “The terms and conditions for this are currently being analyzed, which will determine the expected value for the State, the interest of potential participants, and the impact on profit generation for Pemex”, said Pemex corporate director of planning, coordination and performance, Jorge Aguilar, during the company’s earnings call with analysts.
- US midstream company Monterra Energy, owned by international investment fund KKR, filed an arbitration case against Pemex over its failure to purchase a storage terminal in the Gulf of Mexico. The US company requested damages of US$667 mn.
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